NAIROBI, Kenya - The World Bank on Monday, November 24, 2025, projected that Kenya's economy will grow by 4.9% in 2025 and accelerate to 5.0% in 2026, buoyed by a resilient services sector and a rebound in construction. However, the latest Kenya Economic Update, titled "From Barriers to Bridges: Procompetitive Reforms for Productivity and Jobs in Kenya," delivers a stark warning: the growth is not translating into enough quality employment, particularly for the nation's youth, with the informal sector absorbing the vast majority of new entrants into the workforce.

The headline growth figure, an upgrade from a 4.5% forecast issued in May, signals macroeconomic stability, with inflation remaining within the central bank's target range and a stable exchange rate. The International Monetary Fund (IMF) offers a similar outlook, projecting a 4.8% expansion for 2025. The World Bank attributes the positive momentum to a stronger-than-expected recovery in the construction sector, which had previously been impacted by protests and delayed government payments, alongside continued strength in services and agriculture.

The Engine of Growth and Its Faults

According to the World Bank and data from the Kenya National Bureau of Statistics (KNBS), several key sectors are driving the economic expansion. A rebound in agriculture, following favorable weather conditions, has been crucial. The services sector, including finance, insurance, information technology, and tourism, remains a primary contributor to GDP. The revival of construction, fueled by public projects like affordable housing, provided an "upward surprise" that led to the revised forecast.

Despite this positive macroeconomic picture, the report highlights a deepening structural problem in the labour market. Formal wage employment has grown by an average of just 0.8% over the past decade, while real wages per worker have declined. Consequently, the share of formal jobs in the workforce fell to 15.5% in 2024, down from 18.5% in 2010. The vast majority of new jobs—around 85% in 2023, according to a KNBS survey—are being created in the informal, or "Jua Kali," sector. This sector, while contributing significantly to GDP (estimated at 24-32%), is characterized by low pay, job insecurity, and a lack of social protections like pensions or health insurance.

A 'Gen Z' Crisis: The Youth Employment Dilemma

The failure to generate formal employment poses an acute crisis for Kenya's youth, often referred to as Gen Z. Over 80% of Kenya's population is under the age of 35, and more than 800,000 young people enter the job market each year. While official youth unemployment (ages 15-24) was recorded at 11.93% in 2024 by the World Bank, other organizations like the Federation of Kenya Employers (FKE) place the unemployment rate for those aged 15-34 as high as 67%. This discrepancy often reflects the difference between open unemployment and the more pervasive issue of underemployment in low-quality informal work.

The World Bank report explicitly states that this "glut of low-quality informal jobs is failing to meet the aspirations of the fast-expanding youth population." Many young Kenyans, even with secondary or tertiary education, are forced into the informal sector, where returns on education are lower and opportunities for career progression are scarce. This skills mismatch and lack of viable opportunities is a significant source of social and economic frustration.

Navigating Debt and Policy Headwinds

The economic outlook is not without significant risks. Kenya remains at high risk of debt distress, with public debt standing at nearly 70% of GDP. High debt servicing costs consume over half of tax revenues, constraining public investment in essential services and job-creating initiatives. The National Treasury, led by Cabinet Secretary John Mbadi, has acknowledged these fiscal pressures and is engaged in discussions with the World Bank and IMF for potential debt restructuring and concessional financing.

The government's fiscal consolidation efforts, including new tax measures, aim to create more fiscal space but have also faced public resistance. External risks, including geopolitical tensions, fluctuating commodity prices, and a potential slowdown in the global economy, could also impact Kenya's trade and tourism sectors. The World Bank recommends a focus on pro-competitive reforms to unlock private sector productivity, which it argues is essential for creating more and better-paying jobs.

As Kenya charts its economic path for 2025 and beyond, the central challenge for policymakers will be to bridge the gap between positive GDP figures and the lived reality of millions of young citizens seeking secure and meaningful employment. Without structural reforms that formalize the economy and foster inclusive job creation, the nation's demographic dividend risks becoming a source of instability rather than prosperity.